When you look at your SaaS churn numbers and SaaS metrics, should you be worried? You need saas churn benchmarks to understand your performance.
Is the business healthy? Trend analysis over time will give you some insight. However, that level of analysis may not be enough if you want to earn attention and funding from investors. Courtesy of Nathan Latka’s GetLatka database’s great B2B SaaS data, we have the answers.
Are you looking for a hot niche to join in B2B SaaS? Three segments stand out to me. First, the marketing and advertising automation category is booming! Second, cybersecurity software broadly defined is growing at a steady clip. Finally, there are opportunities for big wins in niche verticals (e.g., “CRM for public speakers”).
SaaS Churn Metrics: The SaaS Churn Benchmarcks for B2B Software
In the world of business software, there are many ways to segment the data. Typically, it is difficult to pin down reliable financial data. However, this time is different. Here are insights from companies that have achieved traction. All 16 of these companies have an annual contract value of $100,000 or higher and at least 100 customers. The average annual recurring revenue is $64 million. Keep in mind that these are not “founded last weekend” start-ups, either. Nine of the companies were founded before 2010, and the newest company on the list was established in 2015. In the charts, I am also included a broader SaaS churn rate benchmarks based upon more than from 200 companies.
SaaS Annual Gross Churn: Are Losing More Than 10% Of Your Customer Base Annually?
Most B2B SaaS categories face intense competition in their efforts to beat SaaS churn benchmarks. Take one of my favorite segments, marketing automation software, for example. As of April 2019, there are more than 7,000 Mar Tech (Marketing Technology) companies in the category, according to ChiefMarTec, while there were only 2,000 companies in the space in 2015. The sheer growth in the competition is one reason why you face a scary B2B churn rate. Another reason: a new executive joins a company and wants to clean house. Finally, if you disappoint customers with a miserable experience, don’t expect them to renew their contracts even if you have heroic customer success staff.
In this data set, the average gross annual churn rate is 10%. That means it would take a decade to lose all of your customers based on that metric. However, there are a few star companies that have achieved gross annual churn rates under 10%.
These four companies have great SaaS metrics and beat the standard saas churn benchmarks despite charging high prices.
- Benevity (Benefits management): reports 2% gross annual churn with 450 customers
- Braze (Marketing Automation): reports 5% gross annual churn with 600 customers (they are second only to Ping Identity in terms of total customers for the 16 customers I’m analyzing in this article)
- Service Channel (Source, manage and pay for maintenance and contractors): reports 4% gross annual churn with
- Lotame (a digital advertising platform): reports 5% gross annual churn
Gross churn tells you one piece of the SaaS metrics story. Let’s also look at annual expansion revenue. That tells you more about your success with your current customer base. They see enough value in your platform to purchase more licenses, volume, and access.
SaaS Expansion Revenue Annually: 27%-29% Is The Benchmark To Beat
For SaaS companies in the $50 million to $100 million revenue category, expansion revenue is essential. Based on these 16 companies, the average expansion revenue was 27%. If we remove one company that reported 0% expansion (ouch!), the average changes to 29%. From a SaaS founder or management perspective, expansion revenue is a good indicator of healthy growth. If you overemphasize short term metrics like “new customers signed this month,” you may suffer in the long term as wrong fit customers leave in large numbers.
As with the gross churn numbers above, let’s recognize a few outstanding companies that are beating the average.
- mParticle (customer experience software): 55% gross revenue expansion
- Ping Identity (identity management software): 40% revenue expansion
- Lob (marketing automation software): 40% revenue expansion
- Neoreach (influencer marketing software): 40% revenue expansion
These companies are definitively doing something right when it comes to customer service, customer success, and product.
Who Are The 16 SaaS Companies?
To give you further context on the data set, here is the list of companies I analyzed courtesy of Nathan Latka’s podcast inteviews.
B2B SaaS Churn And Expansion: What Marketers Need To Know
From a marketing perspective, this set of companies is impressive because high contract value means customers are going to be demanding. The sales process is not going to be fast. That’s why content marketing has a critical value to play in your SaaS marketing channels. With high quality content, you will be able to open doors as a thought leader, create trust, position your product against competitors, and build relationships with your accounts. Let’s end on a upbeat note – yes, competition is tough but you can beat the SaaS churn rate benchmarks by modeling what these companies have achieved.